Italian GDP Contracted In Q2

Italy’s National Institute of Statistics has just made preliminary Gross Domestic Product (GDP) data available for the second quarter of this year. The information is subject to revision later but for now it serves as a good guide to the overall trend of the Italian recovery. The headline figure now stands at -0.3% when measured on a year on year basis, this is in comparison to the final first quarter reading which revealed a contraction in the economy of -0.4%, the markets had been anticipating a slight expansion of 0.1% in today’s reading. Quarter on quarter Italy’s growth is running at -0.2% according to this data release, the Q1 equivalent was a moderate contraction of -0.1% and markets had been hopeful of a gain in the region of 0.2% today.

The Bank of Italy has recently cut it’s growth prediction for the Italian economy. In a report published two weeks ago it revised it’s initial forecast of 0.7% annual growth down to just 0.2% for 2014, optimistically perhaps it at the same time raised next years full year growth forecast from 1.0% to 1.5%. The Italian Government and the European Union are still anticipating stronger growth this year, they currently hold forecasts for 0.8% and 0.6% respectively, both figures are however likely to undergo revisions in the not too distant future.

One significant problem Italy is facing currently is the lack of progress in pushing through much needed economic reforms, the Government of Matteo Renzi has declared it’s intention to implement wide ranging structural reforms but it is facing strong resistance from many quarters particularly labour unions. In a bid to win support domestically, Renzi has challenged the EU to relax it’s 3% deficit rule in relation to Italy, this is unlikely to come to pass but making the EU the bad guy will enable the Italian Government to hold stronger on it’s reform line.

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